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TSX Venture Exchange and Gold

It was another “breakthrough” week for the Venture as the Index, now powered by the first reversal to the upside in its 200-day moving average (SMA) since mid-2009, cut through the psychologically important 1000 barrier like a knife through butter.  A weekly gain of 26 points left the Index at 1022 – its highest level since a 10% drop in April of last year that eventually led to the bear market low of 859 at the end of June.

Yes, a new Venture bull market has commenced and this is confirmed by numerous factors including a breakout in the CRB Index which we’ll show in a chart tomorrow.  The next major Venture resistance is around 1150.  How quickly it gets there is anyone’s guess – the Index has climbed 11 days in a row and may need to pause and catch its breath a few times on the way to 1150.  But the opportunities are enormous, we believe, looking out over the next 6-9 months in particular as the masses finally discover that the bear market in juniors is over.

Canada’s first major “area play” in this new bull market is occurring in the Sheslay Valley of northwestern B.C., a prolific under-explored region we initially brought to our readers’ attention in June of last year.  Dozens of companies may ultimately get involved in this district, and BMR has learned – this is very interesting – that privately-held Kalt Industries, an early player in the Athabasca uranium frenzy, has been staking ground aggressively in the Sheslay Valley in recent days.  The three Venture companies with the most advanced drill-ready properties in the area have risen substantially since their December lows – in alphabetical order, Doubleview Capital Corp. (DBV, TSX-V), Garibaldi Resources Corp. (GGI, TSX-V) and Prosper Gold Corp. (PGX, TSX-V) have posted gains of 525%, 181% and 74%, respectively.  This is just the beginning, in our view, as the masses have yet to discover what’s unfolding in the Sheslay Valley or even where this area is for that matter – quite stunning, actually, when a quick look at the B.C. regional map reveals that this under-exploited area blankets the northern flank of the incredible Stikine Arch and is only 90 km northwest of Imperial Metals’ (III, TSX) Red Chris mine about to go into commercial production.  The Northwest Transmission Line is going to open up all of northern B.C.  With the strong possibility of not one, not two, but multiple Cu-Au porphyry deposits along NW/SE parallel trends in the Sheslay Valley, millionaires could be made out of this area play in the coming months.  The Sheslay Valley will pour gasoline on the Venture fire, as will some other discoveries.

In Saskatchewan, Fission Uranium Corp. (FCU, TSX-V) reported more spectacular high-grade results from its PLS Property and climbed 9 cents last week which added nearly $30 million to its market cap.  Meanwhile, NexGen Energy Ltd. (NXE, TSX-V) reported an early discovery on its Rook 1 Project (“Arrow” target) and jumped 130% last week on total volume (all exchanges) of about 14 million shares.

A combination of discoveries and healthier commodity prices should give the Venture an excellent opportunity, in our view, to reach at least the first Fib. resistance level this year of 1465.  Below is an updated 5-year weekly Venture chart from John.  Buy pressure is increasing, the trend is very bullish, and RSI(14) has plenty of room to move higher.

The Importance Of Being Selective

We caution, as always, that a rising tide will not lift all boats.  In this new Venture bull phase, we suspect that how money is going to be deployed (into financings and the open market) will be different than how it was deployed in previous bull markets.  Investors will be more selective – many have learned the hard way from recent mistakes – and the companies that will be favored will be the ones that can demonstrate they have highly competent management and geological teams, and properties of very strong merit.  That means many Venture companies – hundreds literally – won’t fully participate in this upswing.  Continue to avoid “lifestyle” companies like the plague.  They don’t deserve a nickel of your money.

The Seeds Have Been Planted (And Continue To Be Planted) For The Next Big Run In Gold Stocks

There’s no better cure for low prices than low prices.  The great benefit of the collapse in Gold prices in 2013 is that it forced producers (at least most of them) to start to become much more lean in terms of their cost structures. Producers, big and small, have started to make hard decisions in terms of costs, projects, and rationalizing their their overall operations.  Exploration budgets among both producers and juniors have also been cut sharply.  In addition, government policies across much of the globe are making it more difficult (sometimes impossible) for mining companies to put Gold (or other) deposits into production, thanks to the ignorance of many politicians and the impact of radical and vocal environmentalists (technology has made it easier for groups opposing mining projects to organize and disseminate information, even in remote areas around the globe).   Ultimately, all of  these factors are going to create a supply problem – think about it, where are the next major Gold deposits going to come from? On top of that, grades have fallen significantly just over the past decade.

It doesn’t take a rocket scientist to figure out that the next huge bull market in Gold stocks is just around the corner due to demand-supply dynamics, much leaner producers who will suddenly become earnings machines, and a junior market that will be healthier simply because a lot of the “lifestyle” companies sucking money out of investors will simply disappear or get taken over by individuals or groups who are actually competent and serious about building shareholder value.   A healthy “cleansing” in the market has been taking place.  As this continues, more and more seeds are being planted for an incredible future move in well-managed Gold producers and explorers that could make the dotcom bubble look like a tea party.  As for the juniors, focus on the small universe of companies that have the ability to execute both on the ground and in the market.  Companies that are strong financially, have superior exploration prospects, competent management and clean share structures.

Gold

It was another solid week for Gold which climbed $9 an ounce to finish at $1,326.  As you can see on John’s 9-month daily chart below, a double bottom reversal pattern formed in 2013 as bullion definitely appears to have turned the corner.  In the immediate future, it’s reasonable to expect that Gold will test resistance around $1,350 and then consolidate its recent gains to unwind temporarily overbought conditions.  There are two very strong support areas – the 200-day SMA, currently at $1,307, and $1,275 which provided stiff resistance throughout December and into mid-February.

For the first time since 1980, Switzerland has released monthly Gold trade data, providing a more transparent picture of physical Gold flows.  In January alone, the Swiss report showed an incredible 80% of Gold shipments went to Asia which underscores how bullion has been moving from the west to the east.  Why do so many western investors and analysts not understand the importance of China’s growing appetite for Gold and the extent to which they’ve been accumulating the metal?

As Mineweb’s Lawrence Williams (www.mineweb.com) wrote last week, “If we assume ETF sales become a net zero this year, which is certainly possible, that immediately takes 880.8 tonnes off the market and if Eastern demand remains at anything like 2013 levels that is going to create a huge shortage in physical Gold supply.”

Silver gained 35 cents last week to close at $21.86 (John will updated Silver charts tomorrow morning).  Copper finished up a penny at $3.27.  Crude Oil surged another $1.90 a barrel to $102.20 while the U.S. Dollar Index gained one-tenth of a point to 80.26.

The “Big Picture” View Of Gold

As Frank Holmes so effectively illustrates at www.usfunds.com, the long-term bull market in Gold has been driven by both the Fear Trade and the Love Trade.  The transfer of wealth from west to east, and the accumulation of wealth particularly in China and India, has had a huge impact on bullion.  Despite Gold’s largest annual drop in three decades in 2013, the fundamental long-term case for the metal remains solidly intact – currency instability and an overall lack of confidence in fiat currencies, governments and world leaders in general, an environment of historically low interest rates, a Fed balance sheet now at $4 trillion and still expanding, money supply growth around the globe, massive government debt from the United States to Europe, central bank buying, flat mine supply, physical demand (especially from China), emerging market growth, geopolitical unrest and conflicts…the list goes on.  However, deflationary concerns around the globe and the prospect of Fed tapering had a lot to do with Gold’s plunge during the spring below the technically and psychologically important $1,500 level, along with the strong performance of equities which drew “momentum traders” away from bullion.  June’s low of $1,179 was likely the bottom for Gold.  Extreme levels of bearishness emerged in the metal last year.  With the long-term bull market remaining intact, we expect new all-time highs in Gold as the decade progresses.  Inflationary pressures should eventually kick in around the globe after years of ultra-loose monetary policy.